Many business leaders conduct at least some of their work from home. And it is deductions on these home-based activities over which the ATO is cracking down on – hard.
In its latest update, the Tax Office said that record numbers of Australians are now claiming deductions for costs incurred while working from home, but that a “high level” of mistakes – whether intentional or not – are causing it to increase attention on such claims this tax season.
ATO assistant commissioner Kath Anderson said 6.7 million taxpayers claimed a record $7.9 billion in “other work-related expenses” last financial year. This category includes home-based expenses.
“While extra costs related to working from home are usually deductible, we are seeing some taxpayers either over-claiming or claiming private costs,” Ms Anderson said.
A common one is putting through the entire mobile phone or internet bill, which is a big no-no. Only the work-related components of such expenses are eligible to be claimed.
“If working from home means sitting in front of the TV or at the kitchen bench doing some emails, it’s unlikely that you are incurring any additional expenses.”
However, if you have a separate work area, then you can claim the work-related portion of running expenses for that space,” Ms Anderson explained.
Ms Anderson also suggested that many workers are claiming deductions over things they are not usually entitled to claim – such as rent or mortgage repayments – as well as expenses for which they were already reimbursed by their employer.
As such, she warned that the ATO can and will contact employers to verify expenses.
She warned that many taxpayers continue to claim deductions without being able to substantiate their claims.
“This tax time, we expect to disallow a lot of claims where the taxpayer hasn’t kept records to prove that they legitimately incurred the expense and that the expense was related to their work,” said Ms Anderson.
“To claim working from home expenses, taxpayers must keep supporting records such as receipts, diary entries and itemised phone bills or other records. Even though detailed receipts are not required for phone and internet claims up to $50 per year, it’s not an automatic entitlement – you still need to be able to show how you calculated your claim.”
Ms Anderson urged all taxpayers, employees and business leaders alike, to follow the three golden rules for claiming work-related tax deductions:
“One – you must have spent the money yourself and not been reimbursed. Two – the claim must be directly related to earning your income. And three – you need a record to prove it.”
The ATO recently revealed it has overturned $53 million worth of errors so far this tax season as evidence of it catching out improper and bogus claims.
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.